Full Judgment Text
2025 INSC 1034
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6888 OF 2018
CHAMUNDESHWARI
ELECTRICITY SUPPLY
COMPANY LTD. (CESC)
…APPELLANT(S)
VERSUS
SAISUDHIR ENERGY
(CHITRADURGA) PVT. LTD.
& ANR.
…RESPONDENT(S)
J U D G M E N T
SATISH CHANDRA SHARMA, J.
STATEMENT OF FACTS
1. This appeal is arising from the judgment dated 21.03.2018
of the Appellate Tribunal for Electricity, New Delhi (the
“APTEL”), whereby the APTEL has affirmed the order dated
28.01.2015 of the Karnataka Electricity Regulatory Commission
(the “State Commission”/“KERC”), whereby the State
Commission directed Chamundeshwari Electricity Supply
Corporation Limited, the Appellant herein, to restore to the
Signature Not Verified
Digitally signed by
NEETU SACHDEVA
Date: 2025.08.25
17:03:24 IST
Reason:
Developer i.e. Respondent No. 1 herein, the amount realised from
C. A. No. 6888 of 2018 Page 1 of 30
the encashment of the performance bank guarantee; extend the
timelines for fulfilment of contractual obligations; and to
undertake renegotiation of the tariff under the Power Purchase
Agreement (the “PPA”) for a solar power project.
2. The Appellant, Chamundeshwari Electricity Supply
Company Limited (“Chamundeshwari”/“CESC”), is a
distribution licensee wholly owned by the State of Karnataka.
The Respondent No. 2, Karnataka Power Transmission
Corporation Limited (“KPTCL”), is the State transmission utility
and a statutory corporation. Both entities are State
instrumentalities engaged in discharging public functions under
the Electricity Act, 2003. The Respondent No. 1, M/s Saisudhir
Energy (Chitradurga) Pvt. Ltd. (the “Developer”) a special
purpose vehicle promoted and incorporated by M/s Saisudhir
Energy Limited, a private generating company selected pursuant
to a competitive bidding process for the establishment of a 10
MW solar power project in Chitradurga District.
3. The lis traces its origin to a request for proposal issued by
the Karnataka Renewable Energy Development Limited (the
“KREDL”) inviting bids for selection of Solar Power Developers
(the “SPDs”) to establish grid-connected solar power plants in
the State of Karnataka. The bidding process was conducted under
the aegis of the State’s solar policy to promote renewable energy
C. A. No. 6888 of 2018 Page 2 of 30
capacity. Pursuant to the competitive bidding process, the
Respondent No. 1/Developer was selected for development of a
10 MW solar photovoltaic power project at Thallaku Village,
Challakere Taluk, Chitradurga District, Karnataka.
4. On 30.08.2012, Appellant and the Respondent
No. 1/Developer executed a PPA for procurement of 10 MW solar
power at a tariff of Rs. 8.49/kWh, approved by KERC. The PPA
envisaged achievement of Commercial Operation Date (the
“COD”) within 12 months from the Effective Date, preceded by
satisfaction of “Conditions Precedent” (the “CPs”) under Article
4 of the PPA, within 240 days.
5. On 28.05.2013, the parties executed a supplementary PPA,
inter alia, aligning the commissioning schedule and other
contractual timelines with the State Commission’s tariff order
and clarifying the delivery point and interconnection facilities. It
reaffirmed that CPs were to be fulfilled within 240 days and COD
achieved within 12 months thereafter. The CPs obliged the
Respondent No. 1/Developer to acquire land, secure statutory
approvals, achieve financial closure, enter into connectivity
agreements, and ensure readiness of the evacuation system in
coordination with Respondent No. 2/KPTCL.
6. The project site was finalised at Village Thallaku,
Challakere Taluk, Chitradurga. The Respondent No. 1/Developer
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obtained permission under Section 109 of the Karnataka Land
Reforms Act for acquisition of 49.36 acres by the order of the
Deputy Commissioner dated 19.02.2014.
7. The evacuation scheme prepared by Respondent
No. 2/KPTCL envisaged connection of the project to the State
grid through the commissioning of two specific 220 kV double-
circuit transmission lines: one between Birenhalli and Thallak;
and another between Hiriyur and Gowribidnur. The readiness of
these lines was, in effect, a technical and operational precondition
for the grant of synchronisation approval as outlined in letter
dated 06.02.2014.
8. On 05.04.2014, the Respondent No. 1/Developer sought
Appellant’s assistance for securing approvals and requested
extension of the COD, citing delay in Respondent
No. 2/KPTCL’s commissioning of the 220 kV lines. Vide letter
dated 17.05.2014, Appellant stated that extension could be
considered only on condition of a reduced tariff from Rs.
8.49/kWh to Rs. 2.39/kWh. The Respondent No. 1/Developer
contested this reduction and approached the State Commission
by way of O.P. No. 24 of 2014, seeking inter-alia; i) restoration
of the performance bank guarantee; ii) extension of timelines;
and iii) consequential direction for tariff renegotiation, thereby
retaining the original tariff. Pertinently, vide an interim order
C. A. No. 6888 of 2018 Page 4 of 30
dated 14.11.2014, the State Commission directed Appellant
herein not to encash the performance security/bank guarantee.
9. During pendency, the Respondent No. 1/Developer
addressed further letters seeking extension of time for CPs
fulfilment, pointing to the dependency on Respondent
No. 2/KPTCL’s works. In response to a Right to Information
application, Respondent No. 2/KPTCL confirmed that the 220
kV lines were likely to be commissioned only in August 2015,
well beyond the original CP and COD timelines.
10. Due to the inability to evacuate the contracted power,
Appellant claims to have procured power from alternate sources
at higher rates, incurring losses to the tune of Rs. 48.65 crores.
The Respondent No. 1/Developer, on the other hand, faced
encashment of the performance bank guarantee to the tune of
Rs. 24.9 crores despite COD being rendered impossible due to
Respondent No. 2/KPTCL’s admitted delay.
11. Vide final order dated 28.01.2015, the State Commission
held that the delay in completion of the evacuation system
constituted a Force Majeure event under the PPA and accordingly
ordered: (i) restoration of the encashed performance security to
the Respondent No. 1/Developer; (ii) extension of the contractual
timelines and (iii) renegotiation of the project tariff in the light of
the revised commissioning schedule.
C. A. No. 6888 of 2018 Page 5 of 30
12. Aggrieved by the orders passed by the State Commission,
Appellant filed Appeal No. 176 of 2015 before the APTEL and
APTEL vide the impugned order dismissed the appeal filed by
the Appellant thereby affirming the findings and directions of the
State Commission. It is against this concurrent view of the fora
below that Appellant has approached this Court in the present
appeal.
SUBMISSIONS BY THE APPELLANT
13. Learned Senior Counsel appearing for Appellant submits
at the outset that the dispute cannot be adjudicated without first
appreciating the essential character of the agreement between the
parties. It is urged that the PPA, executed on 30.08.2012 and
supplementary PPA on 28.05.2013, is in its essence a contingent
contract within the meaning of the Indian Contract Act, 1872 (the
“Contract Act”). The PPA is a self-contained commercial
arrangement concluded through competitive bidding. Its terms
allocate risk and provide specific remedies.
14. Obligation to achieve the COD within the stipulated period
is, by the very structure of the PPA, inextricably linked to the
readiness of the evacuation system - a responsibility that rests
squarely on Respondent No. 2/KPTCL, the State transmission
utility. In the absence of such readiness, Respondent No. 1 was
C. A. No. 6888 of 2018 Page 6 of 30
aware that synchronisation and injection of power into the grid is
technically impossible.
15. Inviting our attention to Article(s) 4 and 5 of the PPA,
learned Senior Counsel submits that while Article 4 sets out the
CPs to be duly complied with by the Respondent
No. 1/Developer within the stipulated timelines, Article 5
enumerates the substantive obligations to be discharged in
furtherance of the contractual scheme. It is urged that the
framework of these provisions does not contemplate any dilution
of responsibility on the premise that certain elements may require
coordination with other agencies, or may otherwise lie beyond
the control of the Respondent No. 1/Developer. The said
Article(s), in material part, provide as follows:
“ARTICLE 4: CONDITION PRECEDENT
4.1 Condition Precedent
Save and except as expressly provided in Articles 4,
14, 18, 20 or unless the context otherwise requires,
the respective rights and obligations of the Parties
under this Agreement shall be subject to the
satisfaction in full of the conditions precedent
specified in this Clause 4 (the “Conditions
Precedent”) by the Developer within 240 (two
hundred and forty) days from the Effective Date,
unless such completion is affected by any Force
Majeure event, or if any of the activities is
specifically waived in writing by CESC Mysore.
C. A. No. 6888 of 2018 Page 7 of 30
4.2 Conditions Precedent for the Developer
The Conditions Precedent are required to be
satisfied by the Developer shall be deemed to have
been fulfilled when the Developer shall have:
a) obtained all Consents, Clearances and
Permits required for supply of power to
CESC Mysore as per the terms of this
Agreement;
b) not Applicable
c) achieved Financial Closure and provided
a certificate to CESC Mysore from the lead
banker to this effect;
d) made adequate arrangements to connect
the Power Project switchyard with the
Interconnection Facilities at the Delivery
Point;
e) obtained power evacuation approval from
[Karnataka Power Transmission Company
Limited (“KPTCL”)/CESC Mysore, as the
case may be];
f) produced as per the requirements set out
in Schedule 1, the documentary evidence of
having the clear title and possession of the
land required for the Project in the name of
Developer;
g) fulfilled Technical Requirements for Solar
PV Project as per the format provided in
Schedule 2 and also provides the
documentary evidence for the same;
h) delivered to CESC Mysore from
confirmation, in original, of compliance with
the equity lock-in condition as set out in 5.2;
and
i) delivered to CESC Mysore a legal opinion
from the legal counsel of the Developer with
C. A. No. 6888 of 2018 Page 8 of 30
respect to the authority of the Developer to
enter into this Agreement and the
enforceability of the provisions thereof.
4.2.1 Developer shall make all reasonable
endeavours to satisfy the Conditions Precedent
within the time stipulated and CESC Mysore shall
provide to the Developer all the reasonable
cooperation as may be required to the Developer for
satisfying the Conditions Precedent.
4.2.2 The Developer shall notify CESC Mysore in
writing at least once a month on the progress made
in satisfying the Conditions Precedent. Developer
shall promptly inform the CESC Mysore when any
Conditions Precedent is satisfied by it.
4.3 Damages for delay by the Developer
In the event that the Developer does not procure
fulfillment of any or all of the Conditions Precedent
set forth in Clause 4.2 within the period of 240 days
and the delay has not occurred for any reasons
attributable to CESC Mysore or due to Force
Majeure, the Developer shall pay to CESC Mysore
Damages in an amount calculated at the rate of
0.2% (zero point two per cent) of the Performance
Security for each day's delay until the fulfillment of
such Conditions Precedent, subject to a maximum
period of 30 (thirty) days. On expiry of the said 30
(thirty) days, CESC Mysore at its discretion may
terminate this Agreement.
4.4 Performance Security
a) For due and punctual performance of its
obligations under this Agreement, relating to the
Project, the Developer has delivered to CESC
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Mysore, simultaneously with the execution of this
Agreement, an irrevocable and revolving bank
guarantees from a scheduled bank acceptable to
CESC Mysore for an amount of Rs. 24,90,00,000/-
(Rupees Twenty Four Crores Ninety Lakhs only)
(“Performance Security”). The Performance
Security is furnished to CESC Mysore in the form of
three bank guarantees in favour of Managing
Director of the CESC Mysore as per the format
provided in Schedule 3 and having validity up to 1
year from the Commercial Operation Date. The
details of the bank guarantees furnished towards the
Performance Security are given below;
(i) Bank Guarantee No. 2657BG3652012 dated 24
August, 2012 for an amount of Rs. 4,98,00,000/-
(Rupees Four Crores Ninety Eight Lakhs only);
(ii) Bank Guarantee No. 2657BG3662012 dated 24
August, 2012 for an amount of Rs. 9,96,00,000/-
(Rupees Nine Crores Ninety Six Lakhs only); and
(iii) Bank Guarantee No. 2657BG3672012 dated 24
August 2012 for an amount of Rs. 9,96,00,000/-
(Rupees Nine Crores Ninety Six Lakhs only).
b) Appropriation of Performance Security
Upon occurrence of a Developer Default or failure
to meet the Conditions Precedent by the Developer,
CESC Mysore shall, without prejudice to its other
rights and remedies hereunder or in law, be entitled
to encash and appropriate the relevant amounts
from the Performance Security as Damages for such
Developer Default or Conditions Precedent. Upon
such encashment and appropriation from the
Performance Security, the Developer shall, within
C. A. No. 6888 of 2018 Page 10 of 30
30 (thirty) days thereof, replenish, in case of partial
appropriation, to its original level the Performance
Security, and in case of appropriation of the entire
Performance Security provide a fresh Performance
Security, as the case may be, and the Developer
shall, within the time so granted, replenish or
furnish fresh Performance Security as aforesaid
failing which CESC Mysore shall be entitled to
terminate this Agreement in accordance with
Article 16.
c) Release of Performance Security
Subject to other provisions of this Agreement, CESC
Mysore shall release the Performance Security, if
any within 1 year from the Commercial Operation
Date.
The release of the Performance Security shall be
without prejudice to other rights of CESC Mysore
under this Agreement.”
“ARTICLE 5: OBLIGATION OF THE
DEVELOPER
5.1 Obligations of the Developer
5.1.1 Subject to and on the terms and conditions of
this Agreement, the Developer shall at its own cost
and expense;
a) procure finance for and undertake the designing,
constructing, erecting, testing, commissioning and
completing of the Power Project in accordance with
the Applicable Law and Grid Code observe, fulfill,
comply with and perform all its obligations set out
in this Agreement or arising hereunder;
C. A. No. 6888 of 2018 Page 11 of 30
b) comply with all Applicable Laws and obtain
applicable Consents, Clearances and Permits
(including renewals as required) in the performance
of its obligations under this Agreement and
maintaining all Applicable Permits in full force and
effect during the Term of this Agreement;
c) commence supply of power up to the Contracted
Capacity to CESC Mysore no later than the
Scheduled Commissioning Date and continue the
supply of power throughout the term of the
Agreement;
d) connect the Power Project switchyard with the
Interconnection Facilities at the Delivery Point;
e) own the Power Project throughout the Term of
Agreement and keep it free and clear of
encumbrances, except those expressly permitted
under Article 19; and
f) comply with the equity lock-in conditions set out
in Clause 5.2; and
g) be responsible for all payments related to any
taxes, cesses, duties or levies imposed by the
Government Instrumentalities or competent
statutory authority on land, equipment, material or
works of the project to or on the electricity
consumed by the Project or by itself or on the
income or assets owned by it;
h) be responsible for the construction of additional
bays in case required;
i) construct and carry out the maintenance of the
transmission line up to the Delivery Point, during
the Agreement Period and pay applicable
C. A. No. 6888 of 2018 Page 12 of 30
supervision charges to the concerned Government
Instrumentality;
j) make arrangements for auxiliary consumption
and bear all the related costs for the same.
5.1.2 The Developer shall discharge its obligations
in accordance with Good Industry Practice and as
a reasonable and prudent person.
5.1.3 The Developer shall, at its own cost and
expense, in addition to and not in derogation of its
obligations elsewhere set out in this Agreement:
a) make, or cause to be made, necessary
applications to the relevant government agencies
with such particulars and details, as may be
required for obtaining Applicable Permits and
obtain and keep in force and effect such Applicable
Permits in conformity with the Applicable Laws;
b) procure, as required, the appropriate proprietary
rights, licenses, agreements and permissions for
materials, methods, processes and systems used or
incorporated into the Power Project;
c) make reasonable efforts to maintain harmony and
good industrial relations among the personnel
employed by it or its Contractors in connection with
the performance of its obligations under this
Agreement;
d) ensure and procure that its Contractors comply
with all Applicable Permits and Applicable Laws in
the performance by them of any of the Developer's
obligations under this Agreement; and
C. A. No. 6888 of 2018 Page 13 of 30
e) not do or omit to do any act, deed or thing which
may in any manner be violative of any of the
provisions of this Agreement.
5.7 Extensions of Time
5.7.1 In the event that the Developer is prevented
from performing its obligations under Clause 5.1 by
the Scheduled Commissioning Date due to:
a) any CESC Mysore Event of Default; or
b) force Majeure Events affecting CESC
Mysore; or
c) force Majeure Events affecting the
Developer;
the Scheduled Commissioning Date and the Expiry
Date shall be deferred, subject to the limit
prescribed in Clause 5.7.2 and Clause 5.7.3 for a
reasonable period but not less than ‘day for day’
basis, to permit the Developer or CESC Mysore
through the use of due diligence, to overcome the
effects of the Force Majeure Events affecting the
Developer or CESC Mysore, or till such time such
Event of Default is rectified by CESC Mysore.
5.7.2 In case of extension occurring due to reasons
specified in Clause 5.7.1(a), any of the dates
specified therein can be extended, subject to the
condition that the Scheduled Commissioning Date
would not be extended by more than 6 (six) months.
5.7.3 In case of extension due to reasons specified
in Article 5.7.1(b) and (c), and if such Force
Majeure Event continues even after a maximum
period of 3 (three) months, any of the Parties may
C. A. No. 6888 of 2018 Page 14 of 30
choose to terminate the Agreement as per the
provisions of Article 16.
If the Parties have not agreed, within 30 (thirty)
days after the affected Party’s performance has
ceased to be affected by the relevant circumstance,
on the time period by which the Scheduled
Commissioning Date or the Expiry Date should be
deferred by, any Party may raise the Dispute to be
resolved in accordance with Article 18.
5.7.4 As a result of such extension, the Scheduled
Commissioning Date and the Expiry Date newly
determined shall be deemed to be the Scheduled
Commissioning Date and the Expiry Date for the
purposes of this Agreement.”
16. Learned Senior Counsel relies on Article 4.4, which
expressly entitles the Appellant to encash the performance bank
guarantee if supply does not commence by the Scheduled COD,
subject only to relief expressly available under the PPA.
17. On the State Commission’s finding of Force Majeure,
learned Senior Counsel submits that it is both procedurally and
substantively untenable. Procedurally, Article 14.5 of the PPA
makes notice a condition precedent. It requires the affected party
to notify the other within 7 days, with particulars of the event, its
effect, and mitigating measures. The said Article, in material part,
provide as follows:
C. A. No. 6888 of 2018 Page 15 of 30
“14.5 Notification of Force Majeure Event
14.5.1 The Affected Party shall give notice to the
other Party of any event of Force Majeure as soon
as reasonably practicable, but not later than seven
(7) days after the date on which such Party knew or
should reasonably have known of the
commencement of the event of Force Majeure. If an
event of Force Majeure results in a breakdown of
communications rendering it unreasonable to give
notice within the applicable time limit specified
herein, then the Party claiming Force Majeure shall
give such notice as soon as reasonably practicable
after reinstatement of communications, but not later
than one (1) day after such reinstatement.
Provided that such notice shall be a pre-condition
to the Affected Party’s entitlement to claim relief
under this Agreement. Such notice shall include full
particulars of the event of Force Majeure, its effects
on the Party claiming relief and the remedial
measures proposed. The Affected Party shall give
the other Party regular (and not less than monthly)
reports on the progress of those remedial measures
and such other information as the other Party may
reasonably request about the Force Majeure Event.
14.5.2 The Affected Party shall give notice to the
other Party of (i) the cessation of the relevant event
of Force Majeure; and (ii) the cessation of the
effects of such event of Force Majeure on the
performance of its rights or obligations under this
Agreement, as soon as practicable after becoming
aware of each of these cessations.”
C. A. No. 6888 of 2018 Page 16 of 30
17.1 No such notice is ever issued by the Respondent
No. 1/Developer; Force Majeure is not even a pleaded defence
before the State Commission. Substantively, the delay is caused
by another arm of the State, which falls within the contractual
provision for extension under Article 5.7, not within the
exculpatory scope of Force Majeure.
18. It is therefore contended that the Respondent
No. 1/Developer neither obtained an extension under Article 5.7
nor issued a Force Majeure notice under Article 14.5 of the PPA.
In such circumstances, Article 4.4 of the PPA squarely applies.
The State Commission erred in treating the delay as Force
Majeure in the absence of notice and specific plea. The PPA is
not rendered inoperative merely because both the Appellant and
Respondent No. 2/KPTCL are State instrumentalities; each has
distinct contractual and statutory obligations.
19. Learned Senior Counsel further contends that the
jurisdiction of the regulatory bodies does not extend to modifying
the terms of a concluded commercial contract or to conferring
remedies outside the framework of the agreement. The
invocation of the performance bank guarantee was effected
strictly in accordance with Article 4.4 of the PPA, and the amount
realised thereunder cannot be undone by directions that alter the
contractual allocation of risk. The PPA contemplates no
C. A. No. 6888 of 2018 Page 17 of 30
automatic extension of timelines; any relief was required to be
sought and obtained under Article 5.7 or by invoking Article 14.5
of the PPA. The Respondent No. 1/Developer’s omission to
pursue such contractual recourse forecloses its claim in law.
20. Learned Counsel lastly addresses the events surrounding
the interim application filed by the Respondent No. 1/Developer
before the State Commission, wherein the State Commission, by
an interim order, expressly restrained Appellant from encashing
the performance bank guarantee pending adjudication. It is urged
that such invocation was carried out under a bona fide belief that
the Respondent No. 1/Developer’s persistent failure to satisfy the
CPs, coupled with the absence of demonstrable progress on site,
had already crystallised the Appellant’s contractual right under
Article 4.4 of the PPA.
SUBMISSIONS BY THE RESPONDENT(S)
21. In reply, learned Counsel appearing for the Respondents
submit that the PPA was consciously entered into with full
awareness of the prevailing transmission network status and the
potential timelines for completion of evacuation facilities. The
CPs under Article 4 and obligations under Article 5 of the PPA
are casted in absolute terms, to be fulfilled within 240 days from
the Effective Date, and the Respondent No. 1/Developer assumes
the commercial risk of timely completion. It must be appreciated
C. A. No. 6888 of 2018 Page 18 of 30
that the performance of the PPA is inextricably contingent upon
the timely completion of the evacuation system by Respondent
No. 2/KPTCL, without which synchronisation and supply of
power to the grid is technically impossible.
22. He contends that such delay, being beyond the Respondent
No. 1/Developer’s control, ought to operate as an automatic
ground for extension of the timelines for fulfilment of the CPs
and achievement of COD, thereby precluding invocation of
Article 4.4 of the PPA. At the same time, counsel stresses that the
“reasonable cooperation” contemplated under Article 4.2.1 is
facilitative and cannot be construed as shifting upon the
Respondent No. 1/Developer the risk of delay in transmission
works which the contract itself allocates to the Appellant’s sphere
of responsibility. To construe otherwise would distort the
contractual allocation of risk and undermine the very structure of
the PPA.
23. Learned Counsel stresses that developers such as the
present Respondent routinely account for external dependencies
in formulating their bids, and the tariff of Rs. 8.49/kWh reflects
this risk assessment. The State Commission, in granting
extension and ordering restoration of the performance bank
guarantee, correctly applied the agreement in a manner that
avoided unjust enrichment of the Appellant.
C. A. No. 6888 of 2018 Page 19 of 30
24. Addressing Force Majeure, learned Counsel submits that
the delay in commissioning the 220 kV evacuation lines is clearly
beyond the Respondent No. 1/Developer’s control, arising from
delays in large-scale transmission works executed by Respondent
No. 2/KPTCL. While a formal notice under Article 14.5 may not
have been issued, the factual circumstances, including the
correspondence placed on record, and the admitted position of
Respondent No. 2/KPTCL are sufficient for the commission to
characterise the event as Force Majeure. It is argued that absence
of such notice, cannot negate the substantive defence where the
facts are undisputed, and the delay is objectively established.
25. Learned Counsel further relies on the conduct of Appellant
itself, which, according to him, reflects an implicit
acknowledgment of the dependency upon Respondent
No. 2/KPTCL’s transmission works. He submits that Appellant
not only entertained successive requests for extension of time but
also engaged in correspondence suggesting revision of tariff from
Rs. 8.49/kWh to Rs. 2.39/kWh, and actively participated in
proceedings before the State Commission without ever
contesting the position that commissioning of the project was
contingent upon completion of Respondent No. 2/KPTCL’s
evacuation infrastructure. He contends that it constitutes tacit
admission that the delay cannot be attributed solely upon
Respondent No. 1/Developer.
C. A. No. 6888 of 2018 Page 20 of 30
26. Learned Counsel further submits that the framework of
Article 4 makes it clear that invocation of the performance bank
guarantee is envisaged as a remedy for performance failures
during the operational phase of the project, and not for pre-COD
breaches of conditions precedent, particularly where such
breaches are directly caused by the Appellant’s own default or
that of another State agency. As to the performance bank
guarantee, the Respondent(s) maintain that its encashment in the
face of an express interim restraint order dated 14.11.2014 of the
State Commission is per se unlawful.
27. Learned Counsel concludes by submitting that the
remedial directions contained in the final order of the State
Commission: i) requiring restoration of the performance bank
guarantee; ii) granting extension of timelines for fulfillment of
conditions precedent; and iii) permitting renegotiation of tariff
are well within its regulatory powers to balance contractual
obligations keeping in mind the larger public interest of securing
timely commissioning of renewable energy capacity for
integration into the grid. The APTEL, in affirming these
directions on 21.03.2018 has committed no error of law
warranting interference by this Hon’ble Court.
C. A. No. 6888 of 2018 Page 21 of 30
FINDINGS OF THE STATE COMMISSION AND APTEL
28. The State Commission, vide its final order dated
28.01.2015 in O.P. No. 24 of 2014, records that the Respondent
No. 1/Developer’s inability to achieve the CPs and COD within
the contractual timelines is directly linked to the non-completion
of the 220 kV evacuation lines by Respondent No. 2/KPTCL. The
commission notes that interconnection of the project to the grid
was technically impossible until such lines were commissioned.
29. Reliance is placed on the RTI reply dated 19.08.2014 from
Respondent No. 2/KPTCL, which admits that the evacuation
lines are likely to be commissioned only in August 2015. This, in
the State Commission’s view, establishes that the delay is not
attributable to any act or omission of the Respondent
No. 1/Developer. Therefore, as per the State Commission, the
delay in completion of the evacuation system was beyond the
control of the Respondent No. 1/Developer amounting to Force
Majeure, thereby justifying extension of timelines.
30. In examining the terms of the PPA, the State Commission
places emphasis on Article 5.7, which contemplates extension of
CPs timelines where the delay is for reasons solely attributable to
the Appellant. It holds that the expression Appellant must, in the
present context, be construed to encompass the acts or omissions
C. A. No. 6888 of 2018 Page 22 of 30
of the State transmission utility, given its integrated role in
enabling evacuation of contracted power.
31. On the invocation of the performance bank guarantee, the
State Commission finds that Appellant proceeded to encash the
security notwithstanding the subsistence of its interim restraint
order. Such invocation, it holds, was contrary both to the
contractual scheme and to the authority of the State Commission.
Article 4, in its view, must be harmoniously read with the
extension mechanism under Article 5.7 of the PPA and the Force
Majeure provisions, such that invocation is impermissible where
the non-performance flows from the default of the Appellant or
its instrumentalities.
32. Notedly, the State Commission takes the view that the
delay in readiness of evacuation facilities falls within the
definition of Force Majeure under the PPA, being an event
beyond the reasonable control of the Respondent
No. 1/Developer. On these findings, the commission directed: i)
Restoration of the encashed security to the Respondent
No. 1/Developer; ii) consideration of an extension of time for
fulfilment of the CPs; and iii) renegotiation of the project tariff
considering the revised commissioning schedule.
33. Likewise, the APTEL vide its judgement dated 21.03.2018
in Appeal No. 176 of 2015, affirmed the decision of the State
C. A. No. 6888 of 2018 Page 23 of 30
Commission in its entirety. The APTEL records that there is no
dispute about the fact that the 220 kV evacuation lines are not
commissioned within the original CP and COD timelines, and
that the delay is attributable to Respondent No. 2/KPTCL.
34. The APTEL further observed that where the Appellant’s
contractual performance is inherently dependent on the
completion of transmission works by Respondent No. 2/KPTCL,
a State instrumentality, delay by such entity must, for the
purposes of Article 5.7 of the PPA, be treated as delays
attributable to the Appellant.
35. Qua the performance security, the APTEL concurs with the
State Commission that the right to invocation of the performance
security under the PPA is not absolute. It must be exercised in
accordance with the contract as a whole, including provisions
that provide relief where non-performance is caused by the
Appellant’s own default. Although a Force Majeure notice under
Article 14.5 was not issued, the APTEL held that the State
Commission was entitled to take judicial notice of the facts on
record which show that the delay is beyond the Respondent
No. 1/Developer’s control. In view thereof, the APTEL dismissed
Appellant’s appeal, thereby upholding the directions for restoring
the performance bank guarantee; extension of contractual
timelines; and renegotiations of the tariff.
C. A. No. 6888 of 2018 Page 24 of 30
ISSUES FOR DETERMINATION AND ANALYSIS
36. Having heard learned Counsel(s) for the parties and upon
close consideration of the record, the following questions fall for
our determination: (i) the effect of Respondent No. 2/KPTCL’s
delay in commissioning the 220 kV evacuation system upon the
timelines stipulated for fulfilment of the CPs and achievement of
COD under the PPA; (ii) the entitlement of Appellant to invoke
and encash the performance bank guarantee in the facts of the
present case; (iii) the sustainability of the finding of Force
Majeure recorded by the State Commission in the absence of the
contractual notice contemplated under Article 14.5 of the PPA;
(iv) the character of the PPA as a contingent contract; and (v) the
competence of the State Commission and the APTEL to direct
restoration of the bank guarantee, extension of timelines, and
renegotiation of tariff.
37. Article 5.1 of the PPA casts upon the Respondent
No. 1/Developer the obligation to complete, at its own risk and
cost, all activities necessary to enable the supply of power to the
Appellant. Article 5.7 provides for extension where delay is “for
reasons solely attributable to the Appellant”. The record discloses
beyond dispute that the evacuation system, integral for delivery
of power, was to be executed by Respondent No. 2/KPTCL
through the construction of two 220 kV double-circuit lines. By
C. A. No. 6888 of 2018 Page 25 of 30
its communication dated 19.08.2014, Respondent No. 2/KPTCL
itself acknowledged that the lines would be commissioned only
in August 2015, well beyond the contractual timelines.
38. The Respondent No. 1/Developer contends that such
delay, being beyond its control, automatically extended the
contractual schedule. That submission cannot be accepted. The
contractual framework does not operate on automaticity. Relief
is conditional upon the Respondent No. 1/Developer seeking and
obtaining an extension under Article 5.7 of the PPA, which was
never done. In the absence of such recourse, the timelines under
the PPA remained binding. Respondent No. 2/KPTCL and
Appellant, being both State instrumentalities does not alter the
position in law. Contractual rights and remedies must be asserted
within the framework of the agreement, not dehors it.
39. Turning then to the invocation of the performance bank
guarantee, Article 4.4 of the PPA confers upon the Appellant the
right to encash the performance security where the Respondent
No. 1/Developer fails to commence supply by the Scheduled
COD, subject to the relief(s) expressly available under the PPA,
including those relating to Force Majeure. In the present case,
supply did not commence within the agreed period; no formal
extension was obtained under Article 5.7 of the PPA; and no
notice of Force Majeure was issued under Article 14.5 of the
C. A. No. 6888 of 2018 Page 26 of 30
PPA. The preconditions for invocation of Article 4.4 of the PPA
thus stood satisfied. Appellant’s invocation of the bank guarantee
was, therefore, an exercise of a remedy specifically conferred by
the contract, and to deny it would be to disregard the allocation
of risk embodied in the PPA. Pertinently, invocation of the bank
guarantee by the Appellant was on 12.11.2014 and the restraining
order was passed by the State Commission only on 14.11.2014.
As the invocation was before the State Commission’s order, the
performance security of Rs. 23,40,60,000/- was transferred to the
account of the Appellant on 06.12.2014, which thereafter came
to be refunded by the Appellant, pursuant to the order of the
APTEL.
40. The finding of Force Majeure by the State Commission
cannot be sustained for the reason that Article 14.5 of the PPA
stipulates that the affected party “shall” issue notice within seven
days of knowledge of the event. This requirement is not merely
directory; it is a condition precedent for invoking the clause.
Even if the delay in completion of the evacuation system was
beyond the Respondent No. 1/Developer’s control, the
appropriate provision for relief was Article 5.7, not Article 14 of
the PPA. Significantly, Article 14.3.1 of the PPA details the events
and circumstances which constitute Force Majeure and delay in
the readiness of the evacuation system, even if attributable to
Respondent No. 2/KPTCL, does not constitute a Force Majeure
C. A. No. 6888 of 2018 Page 27 of 30
event, as defined. The omission to pursue contractual relief under
the correct clause is fatal; it cannot be remedied by recourse to a
provision inapplicable on its terms.
41. As regards the submission that the PPA is in the nature of
a contingent contract under the Contract Act, the contention
requires careful scrutiny. The completion of the evacuation
system by Respondent No. 2/KPTCL was indeed an uncertain
event outside the Respondent No. 1/Developer’s control, and in
a practical sense, supply of power was dependent upon it. Yet, the
PPA does not treat such completion as a condition precedent in
law to the Respondent No. 1/Developer’s obligations. It instead
provides specific contractual mechanism(s) - Article 5.7 for
delays attributable to the Appellant and Article 14 for events of
Force Majeure. Unless relief is sought and secured under those
provisions, the time-bound obligations under the PPA remain
enforceable and the Appellant’s remedies for default intact.
42. Reliance was also placed before us on the decision of this
Court in Venkataraman Krishnamurthy & Anr. v. Lodha Crown
Buildmart Pvt. Ltd., (2024) 4 SCC 230, wherein it was observed
that the explicit terms of a contract are always the final word with
regard to the intention of the parties. We find the principle
enunciated therein to be apposite to the case at hand. This Court
has, in a consistent line of judgements, reiterated that regulatory
C. A. No. 6888 of 2018 Page 28 of 30
or adjudicatory fora cannot, under the guise of equity or fairness,
rewrite the contractual framework or superimpose obligations
alien to the agreement. The PPA, being the product of a
competitive bidding process and having received regulatory
approval, must be construed and enforced strictly in accordance
with its express stipulations. To permit otherwise would be to
allow the State Commission or the APTEL to override the parties
own allocation of risk under the contract.
43. Finally, as to the competence of the regulatory fora ,
Appellant and Respondent No. 2/KPTCL, though both State
instrumentalities, are parties to a commercial contract concluded
through competitive bidding. Their relationship is governed not
by overarching notions of equity but by the terms of the PPA. The
jurisdiction of the regulatory bodies is to ensure compliance with
law and to adjudicate disputes within the four corners of the
contract. It does not extend to recasting the contractual
framework by directing restitution of amount lawfully realised
under the PPA, or by mandating alterations to tariff and timelines
in a manner inconsistent with the agreement. The directions of
the State Commission, affirmed by the APTEL, requiring
restoration of the performance security, extension of contractual
timelines, and renegotiation of tariff, transgress the limits of that
jurisdiction.
C. A. No. 6888 of 2018 Page 29 of 30
CONCLUSION AND DIRECTIONS
44. In light of the foregoing analysis, this Court is of the view
that Appellant’s invocation and encashment of the performance
security was in full conformity with the contractual framework
under the PPA. The non-fulfilment of the Respondent
No. 1/Developer’s obligations within the stipulated time, non-
seeking of extension under Article 5.7 or valid Force Majeure
claim under Article 14, necessarily attracted Article 4.4 of the
PPA.
45. Resultantly, the appeal is allowed and the impugned
judgment dated 21.03.2018 of the APTEL passed in Appeal No.
176 of 2015, and the order dated 28.01.2015 of the State
Commission in O.P. No. 24 of 2014 are set aside.
46. Pending application(s), if any, shall also stand disposed of.
No order as to costs.
……………………………………J.
[SANJAY KUMAR]
……………………………………J.
[SATISH CHANDRA SHARMA]
NEW DELHI
August 25, 2025.
C. A. No. 6888 of 2018 Page 30 of 30